Short Term Investing

[nuisance]

Some of you may remember the thread a while back about underagedrvers, who toured the country for a year in a small RV. My wife and I are planning to do the same thing, and think we can save up the cash so we can leave in the summer of 2008. Does anybody have any recommendations for where to put it? Currently it's earning 3.5% in my bank's checking account. The obvious upgrade is to go to Emigrant or some bank like them. I've looked just a little at short term bond funds but I'm not sure if I'm comfortable with even that little volatility. I'm adding $1500 to the pot every month, so I need an investment where I can do that.
Are there any good options besides a nice checking account?

Tim

 

[nuisance]

Hmm... I'm clearly in need of sleep. Short-term bond funds look to be low risk enough, but they seem to provide less returns than savings accounts? Still interested in what people have to say. I'm going to fix that sleep problem now.

Tim

 

[dex]

US Treasury Direct 4 week bills are paying 4.4% - some states do not tax the interest.

 

[brewer12345]

You have an investment horizon of 2 years. Choose your nvestments accordingly. That means savings accounts, treasuries, CDs, and maybe some very high quality (A rated or better) short term corporates.

 

[Spanky]

I park my cash in Vangaurd Tax-Exempt Money Market fund for now.

 

[nuisance]

Thanks, everybody. I'll spend some time investigating all these options tonight. It's good to have a list. I also just stumbled upon bankrate.com which seems an excellent resource for this.

Tim

 

[brewer12345]

Here's nother goody for you: http://www.imoneynet.com/retailPrimeMMF.htm

 

[renferme]

My credit union is paying 4.85% apy for a cd, min. invest. is $500,, term of 90 days to 5 months.
If you have access to a credit union, check them out.
To find best cd rates, try bankrate.com
you should be able to get anywhere from 4.8% to 5% for 3 months to 2 years,
and it's much safer than bonds funds, that will continue to be terrible as long as interest rates are going up.

 

[uncledrz]

http://www.fatwallet.com/c/52/
is the fawallet finance forum site which has an updating threat on cd rates and another on mm rates, both on the first page of topics

 

[nuisance]

I'm thinking either CDs or MMMFs are the way to go. Looks like banks play too many games with savings account interest rates. I'm not interested in moving the money around every month when a promotion is over. I'm not sure how to compare CDs and MMMFs though, because the given rate of CDs is shown for the next year (I'm looking at 1 year) while the rate shown for MMMFs is shown for the past week. Does anybody have a good link that shows some analysis on this issue? (I suppose you can look at historic returns, and which one typically does better.)

Tim

 

[brewer12345]

I'm thinking either CDs or MMMFs are the way to go. Looks like banks play too many games with savings account interest rates. I'm not interested in moving the money around every month when a promotion is over. I'm not sure how to compare CDs and MMMFs though, because the given rate of CDs is shown for the next year (I'm looking at 1 year) while the rate shown for MMMFs is shown for the past week. Does anybody have a good link that shows some analysis on this issue? (I suppose you can look at historic returns, and which one typically does better.)

Tim

Just to boil the whole thing down to a very simple explanation: your choice of MMF vs. CD depends on what you think very short term rates will do over the next two years until you go travelling. If you pick CDs, you are giving up some liquidity in return for a slightly higher (1/2% or so) rate and forgoing any potential rate increases in the interim period that MMFs might experience. OTOH, you also lock in a rate, so if rates drop you don't lose out if you are in the CD.

If iit were my choice, I would probably just dump the cash in a MMF and have done with it. Hard to go wrong with Vanguard's offerings.

 

[renferme]

I would buy a CD with a term of no longer than 6 months.
Every month you put in $1500, so buy a 6 month CD with that money.
Or every 3 to 4 months, buy a 6 month CD for $5000 if that gets you
a better rate than a $1500 CD.
When the Fed stops raising rates, then buy a longer term CD if time permits.
You don't need the money until 2008 (I believe), so a CD is better than
a MMF.

 

[dunc0029]

A CD may be the way to go. As bennevis said, you may not want to lock in for too long a period as rates are continually being adjusted currently. Alternatively, HSBCDirect currently has rates of 4.8% ( good through April ).

 

[SteveR]

If iit were my choice, I would probably just dump the cash in a MMF and have done with it.  Hard to go wrong with Vanguard's offerings.

That is what I did with both my Mom's house equity and the cash from a CD that matured. I created an account for her and one for me. I already have my 401k there and a Trust account for my late wife's estate so it was a no brainer.

We are just going to let them ride for now. When my other CD matures later this year we will see if we want to put in VG Admiral MM or another CD.

I will take the comfort and simplicity of doing this for now. Once I have more time to "play" I may do it differently. Simple is good.

 

[nuisance]

Thanks again for everybody's help. I've decided to open an account with Vanguard and a MMMF there. I feel that I can probably get a little bit better return with CDs, but that small advantage might be wiped out by me being lazy. With my money in the mutual fund I still have the option of buying some CDs if I want to be more active.

Tim